Employee loan policy template

1. Purpose

This policy sets out the terms on which [Company Name] lends to employees for specific personal needs, and how those loans are approved, documented and recovered.

2. Scope

It applies to confirmed employees with at least [2] years of service who are not serving notice or on a performance improvement plan. Short-term advances are covered by the Salary advance policy.

3. Purposes

• Medical treatment of the employee or a dependant.
• Down payment for, or repairs to, the employee's own home.
• Higher education of the employee's children.
• Marriage of the employee or a dependant.
• Other purposes approved by the loan committee in exceptional cases.

4. Amount, interest and tenure

• The maximum loan is [3] months' gross salary or [₹Amount], whichever is lower.
• Loans carry interest at [Number] percent a year on the reducing balance, [except medical loans, which are interest-free].
• The loan is repaid in equal monthly instalments over up to [24] months.
• The annual loan budget is [₹Amount], and applications are taken up in order of urgency within it.
• An employee may hold only one loan at a time.

5. Application and approval

• The employee submits the application with the purpose and supporting documents, such as a hospital estimate, admission letter or property agreement.
• A loan committee of [the HR head, finance head and a director] decides within [7] working days.
• The employee signs a loan agreement setting out the amount, interest, instalments and consent to recovery from salary and from the full and final settlement.
• For loans above [₹Amount], [a confirmed colleague signs as guarantor].

6. Recovery

• Instalments are deducted from salary every month, starting in the month after disbursement.
• Total deductions in a month stay within the limits on deductions from wages under the Code on Wages, and the tenure is extended if needed to keep within them.
• The employee may prepay all or part of the loan at any time without penalty.
• During long leave without pay, instalments are [deferred or paid directly by the employee], as agreed with finance.

7. Exit

If employment ends before the loan is repaid, the outstanding amount becomes due. It is recovered from the full and final settlement, and any shortfall is repaid by the employee [before the last working day or under a written repayment plan].

8. Tax

Where a loan is interest-free or at a concessional rate, payroll handles any tax effect as per income tax rules.

9. Responsibilities

• Employee: use the loan for the stated purpose and keep documents for verification.
• Loan committee: decide fairly within the budget and record reasons.
• Finance: disburse, track balances and reconcile recoveries every month.

10. Review

Finance reviews the loan budget, limits and interest rate each year, together with any defaults and write-offs.